Who's to blame ?

Who's to blame ?

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Hi

I may have a new customer with a potential large VAT bill, due to having exceeded the VAT threshold.

Their accountant did not advise them they had exceeded the VAT threshold (even though the SA return showed 73K).

The accountant has told the customer that he did not advise him he was over the VAT theshold because the customer did not directly engage him to report VAT.

The customers books close at the end of April (May-Apr), so this has only come to light two years after the event.

Can the customer sue the accountants ?
Peter Grimshaw

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By AnonymousUser
17th Jul 2006 22:17

Presumably the SA return overstated income...
(vat not deducted) and the accounts did not show a true and fair view. Which clause will they invoke for that?
Chris

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By User deleted
17th Jul 2006 13:54

Should have advised
Unless the previous accountant was a complete idiot, surely he or she should have recognised the VAT registration issue at the time of accounts production.

At the time of accounts production surely the need for VAT registration should have been mentioned ?

The client by that time, would already have exceeded the VAT threshold and already be into penalty. However as the penalty is based on the VAT liability from date due to notify liability to register to the date actually notifying registration, the penalty would most likely have ended up higher than had the client follwed the advice of a competent accountant or advisor.

I'm not sure an engagement letter denying ANY advice on VAT is fair to issue to a client, as I remain strongly of the view that any competent advisor would pick up and advise of the breach of run-of-the-mill tax rules like VAT registration. Unfair contract terms can be challenged by the OFT I think, so if this get out is claimed by the previous bad advisor, then this is route to consider. A fair get-out clause might alternatively have said something like "you have not sought VAT advice from us, but nevertheless VAT obligations can arise - you therefore need to either ask us or another advisor to provide this necessary advice as and when necessary. Whilst we are engaged purley to deal with your Accounts and Income Tax matters issues regarding VAT liability may come to our attention - as you have not instructed us to plan or advise on VAT in it's own right, we will nevertheless point out any issues that clearly require you to seek VAT advice from ourselves or other advisors". Being liable to register but not being registered is clearly such an issue.

I cannot see how an accountant advising a small non-VAT registered business can NOT mention the VAT registration rules at the outset - again the abilities of the former advisor are called into question in this case.

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By neileg
17th Jul 2006 13:33

Engagement letter?
The purpose of the engagement letter is to limit the accountant's liability (even if it's dressed up as client support, etc). The wording of the letter would be crucial in determining if a prima facie case of negligence exists.

If there is no engagement letter, the accountant is at a distinct disadvantage, but may still be able to defend the case.

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